All managers are familiar with the concept of “stretch goals” — setting ambitious visionary objectives, to energize the organization (for instance, President Kennedy’s “we will go to the moon by the end of this decade!”). The tricky part of stretch goals is to set them high enough to be energizing, but not so high as to be Don Quixotic, utterly impossible.

President Obama has promised to double US exports over the next five years, from $1 trillion to $2 trillion in 2015. This implies a 15 per cent annual rate of growth in exports. (He refers to goods exports, which amounted to $987 b. in 2009; services exports were another $480 b.).

Is this a stretch goal? Or another empty, impossible promise?

To answer that question, let’s see what it would take to make it happen:

* persuade the left wing of the Democratic Party to stop its efforts to impose tariffs and other protectionist measures. If America tries to halt imports, so will other countries — so much for US export expansion. Proposed free trade agreements with South Korea, Panama and Colombia are stalled, because of Democratic Party opposition, mainly from manufacturing states.

* allow the US dollar to drop steeply, by 30 per cent. This will cause a steep fall in US bond and equity prices, enraging the powerful special interests on Wall St.

* overcome the Wal-Mart bloc, which makes its profits through importing cheap products from China instead of buying US-made products.

* articulate a detailed practical trade policy. No such policy yet exists. Obama said he is starting a National Export Initiative that would “help farmers and small businesses increase their exports.” Does Obama understand that corn farmers in Iowa or plumbers in Utah do not themselves directly export their crops or services?

* Initiate legislation to bring American manufacturing home from Asia. No such legislation exists. I’m not aware even of draft legislation. Commerce Secretary Gary Locke, who will lead such an initiative, is the former governor of Washington State, and is a lawyer. He lacks the business experience and economics knowledge that is required for this to succeed.

* Woo China. America just signed an $8 b. deal to sell arms to Taiwan. To boost exports by 15 per cent yearly, America will need to sell its products and services to the fast-growing economies of India and China. But America has just greatly angered China. Typically, America’s Defense Dept. operates in direct contradiction to America’s Commerce Dept.

* Boost investment. To make globally-competitive products, America will need a huge wave of new capital investment in its industry. There is no sign whatsoever of such a wave; it depends crucially on restoring business profitability, and profits remain low.

* Curtail imports. If American imports double, as well as exports, nothing is gained; jobs lost to imports offset jobs gained by exports. But if imports are curtailed, why should other countries expand their purchases of American products?

* Solve the “rebalancing” problem. The world needs rebalancing — it has been knocked for a loop by huge American trade deficits. Creating a large American export surplus will not ‘rebalance’, but will create a new imbalance problem, impoverishing other countries.

* Boost saving. To free resources for exports, American consumers will need to spend less, and perhaps lower their standard of living, just as Germans, Japanese, Chinese and Indians did for decades. Does anyone believe this will happen?

Prepare for another Obama “we failed and here is why” interview, in TIME magazine, in three years. Perhaps Obama’s advisors should learn from business leaders. They know that before you launch a new “brand promise” campaign, you first build the foundations for it, so you can fulfill that promise. Before Staples launched its “that was easy!” campaign, they redesigned 1,500 stores, and retrained all their key personnel.

Obama consistently launches “yes, we can” rockets, and then wonders why they crash and burn.

How about a new slogan: Yes, we can! and here is how!

*** Footnote: Banner headlines scream “America’s GDP grew by 5.7 percent in the last quarter of 2009”. As I noted before in this blog, this is an optical illusion. Here is why. Final sales to domestic purchasers rose by only 1.7 per cent. That is the increase in what was actually SOLD. Most of the GDP that was produced in Q4 2009 was stuffed into inventory. The change in private non-farm inventories contributed 3.61 per cent of the 5.7 per cent GDP growth, or more than three fifths of the GDP growth! This implies that when businesses stop producing for inventory, GDP growth will fall sharply in 2010. (Source: Bureau of Economic Analysis, US Dept. of Commerce: New Release, Jan. 29/2010).

(based on a Brazilian folktale, recounted by Rabbi Dov Hayun, at a Sabbath lesson)

Once, there was a caterpillar — ugly as sin. He was a good caterpillar, a leader of his tribe, highly respected and well-loved, good at finding juicy leaves for his tribe, in the thick dark jungle.

One day a beautiful butterfly landed next to the caterpillar leader.

“Hey!” said the butterfly. “You can become like me!”

“How?!” asked the caterpillar, with deep skepticism.

“Wrap yourself in silk, build a chrysalis, become a pupa!” urged the butterly. “You can fly!” The butterfly described the sky, high above the jungle, and the sunshine, and the clouds.

“Get lost!” the caterpillar said. “You’re distracting me from my job, leading my tribe, finding food! Did you think I would fall for your tall tales?!”

The butterly flew away.

Soon after, a bird caught the caterpillar in its beak and flew high over the roof of the jungle. The caterpillar saw that the butterfly was right. There was a blue sky! There were clouds! There was bright sunshine.

But an instant later, the caterpillar was stuffed into the beaks of the bird’s goslings…. and his life ended.

………………..

Every one of us caterpillars may become a butterfly. It is our own choice.

Machiavelli’s The Prince: In Innovative Change, Nothing Has Changed in 500 Years!

By Shlomo Maital

Niccolò Machiavelli

In 2013 the world will celebrate the 500th anniversary of the completion of The Prince, a political tract written by the Italian public servant and political theorist Niccolò Machiavelli. His book was written in 1513, but published only five years after his death, in 1532. Because of it, the term Machiavellian (mean, slyly manipulative) is in wide use. This is unfair to Machiavelli. His practical insights into the politics of change stand the test of time — especially regarding why innovation is so immensely difficult to implement.

Here is what he says about innovative change, in Chapter Six, with a few comments. I recommend that all innovators reread The Prince before embarking on a change management project:

“And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.”

Did Barak obama, the author of “Yes, We Can!”, ever read, understand and integrate those words? Based on his recent interview in TIME magazine, he did not.

“This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them. Thus it happens that whenever those who are hostile have the opportunity to attack they do it like partisans, whilst the others defend lukewarmly, in such wise that the prince is endangered along with them.”

This asymmetry of passion is deadly — opponents of change are fierce and passionate, supporters are lukewarm and passive. Change agents find ways to create a better pro-change balance.

It is necessary, therefore, to inquire whether these innovators can rely on themselves or have to depend on others? ….the nature of the people is variable, and whilst it is easy to persuade them, it is difficult to fix them in that persuasion.

Innovators cannot do it on their own; they need a team. Keeping the team motivated is a key part of successful innovative change.

And finally, Machiavelli brings a case study:

Hiero the Syracusan …rose from a private station to be Prince of Syracuse…. This man abolished the old soldiery, organized the new, gave up old alliances, made new ones; and as he had his own soldiers and allies, on such foundations he was able to build any edifice: thus, whilst he had endured much trouble in acquiring, he had but little in keeping.

Hiero rose from ordinary soldier to Prince with difficulty; he remained Prince, because he had a loyal cadre of supporters and soldiers. Innovators build a sometimes subversive group around them who “get it”, and who protect, support and energize their leader. This team is crucial.

Innovative change is without exception political. All the more reason to read or re-read the oldest, and still the best, tract on organizational politics ever written.

Strategy guru Gary Hamel insists that the most powerful locus of innovation is not in products or services, but in business designs and models.

Here is an example, taken from BBC’s Business Daily program.

Ingredients: Take the current high price of gold (as I write this, the price of gold is $1,092 per ounce). Add: the global recession, that has slashed jobs, incomes and wealth. Merge with: Tupperware’s famous business model, in which Tupperware plastic kitchenware is sold at neighborhood parties only.

Krista organizes neighborhood parties. Women bring their gold jewellery to it. An expert evaluates its weight and quality and offers each woman a price. The price is between 60% and 90% of the market value of the gold content. (Recall that Krista’s company will need to smelt the gold, purify it, and put it into certified gold bullion ingots). This is higher than woman get in a pawn shop (between 30 – 50 per cent of the market value of its gold content). Moreover, many women are very uncomfortable going into a pawn shop.

The average sale at these parties is $150, or about £90.

In the famous legend, King Midas turned everything he touched into gold. The results were not happy. Krista Waddell turns gold she touches into profit. And the results are win-win for all concerned.

(This blog is dedicated to the memory of Abraham Karu z’l, entrepreneur and inventor, who passed away last week, and to his generation, who gave of themselves for the benefit of others, as a way of life, during their entire lives).

Give half away.

That is what Kevin Salwen did. Why? Because his 14-year-old daughter Hannah asked him to. If ever there was a radical innovation in family life… this is it.

The Salwen Family

The story is recounted in Nicholas D. Kristof’s New York Times column.[1]

Briefly: While driving their daughter home from a sleepover in 2006, the Salwen family’s car stopped at a stoplight. On the left: an expensive black Mercedes. On the right: a homeless man, begging.

Hannah protested. “Dad,” she said, “if that man had a less nice car, that man there could have a meal!”

“What do you want me to do?”, asked her mother. “Sell our house!?”

That’s precisely what Hannah wanted. Sell the luxurious house, buy a more modest one with half the money, and give the other half to charity.

The family did just that. They gave $800,000 to Project Hunger, sponsoring health, microfinancing, food and other programs for 40 villages in Ghana. They travelled to Ghana with a Project Hunger executive.

Hannah, now a high school junior who hopes to become a nurse, says, “Everyone has too much of something, whether it’s time, talent or treasure. Everyone does have their own half, you just have to find it.”

The Salwen family enjoy their new smaller home. There is less space to retreat to. A smaller house, Kristof writes, “turned out to be a more family-friendly house.” “Half as much” turned into “twice as much”.

Read about the Salwen’s “give away half” idea in Kevin and Hannah Salwen’s book The Power of Half. Then — find your half.

Itay Talgam is a noted Israeli conductor. Once we had him lead a session with TIM managers. He showed them how and why management leadership is similar to conducting an orchestra, and actually had a few of them conduct the TIM “choir”.

Talgam recently (July 2009) taped a 23-minute talk on TED [www.ted.com] (Technology /Entertainment /Design), a marvelous website that features short talks by highly creative individuals. Talgam, according to TED, has “reinvented himself” by teaching the principles of leadership, based on conducting, to managers.

“….even though he is one of the greatest conductors, three years ago Muti received a letter from all 700 musicians in his orchestra saying: You’re a great conductor, please resign. [The musicians were members of the famous Italian opera house La Scala]. This, Talgam says, is because he didn’t let them develop.”

Muti’s leadership style? “It’s all about me!” He conducts with sweeping dramatic movements that rivet the audience’s attention. And his message to the orchestra: We play Mozart. It is Mozart as I, Muti, say it is. Do what I say. Your opinion is of no consequence.

Talgam demonstrates Muti’s leadership style by asking the audience to sing a note, then stops them with a huge sweeping movement! And threatens to choke someone who failed to stop singing…

Many senior managers are Riccardo Muti clones. They are, because they believe (and in many cases have been taught) that THIS is true leadership. Do what I say.

But consider another conductor, Herbert von Karajan. Talgam conducts the TED audience like von Karajan. His hands move in flowing gestures. His eyes are closed. He recounts:

“Let me tell you, Talgam says, “even the [Berlin] Philharmonic looked at Karajan and then they had to look at each other. He explains that Karajan’s philosophy was that the worst damage he could do to his orchestra was to give them clear instructions because that would prevent them listening to each other.”

Von Karajan’s leadership style was to empower the musicians and challenge them to understand what the orchestra, as a whole, wanted to say about Mozart, or Verdi, or Beethoven. His conducting was minimal. For a time, the orchestra players were puzzled. How do we know when to “come in” (begin to play?). They figured it out. They listened and watched each other, and of course watched the concert-master and the first violins.

I believe that true business leaders, the most durable and successful ones, the ones that create powerful organizations (fields of perennial wild flowers) rather than fleeting quarterly profits (crocuses that bloom for two days and wither) are like von Karajan. Their leadership style is not to orate sweeping visions, garnering headlines and media attention. Rather, they lead by creating inspired, empowered followers. Their leadership gathers talent around them like a magnet, because they see their job, as leaders, as fostering and developing such talent, rather than quashing it because it attracts attention away from their own.

Are you Muti? Or Van Karajan? If you are Muti, you can change. Watch Talgam’s TED address, and buy a few van Karajan CD’s.

Clayton Christensen (Harvard Business School) became famous for his concept of disruptive technology: new technology that changes the rules of the game in industries.

Perhaps there is also disruptive management innovations. And Barclays Bank may be implementing one.

The BBC reports that Barclays will defer its bonuses to its 130,000 employees worldwide:

Barclays is to defer paying bonuses earned this year to its directors and senior staff for up to three years. The BBC understands the payments for last year have not been set, but when they are will be paid out mostly in shares in staggered form up to 2013.

Barclays did not receive any money directly from UK taxpayers during the financial crisis. However it did sell a notable share of its business to the government of Abu Dhabi. The bank will tell its 130,000 staff over the next few weeks that while they will be getting a bonus, almost all of it will be deferred over the next three years – and this will be the new ongoing policy.

Until now, American investment banks and some commercial banks have stubbornly insisted: Unless we pay huge bonuses to our top talent, they will quickly leave, join other banks, and make money for them rather than for us. High bonuses are an essential part of the banking landscape. No-one can endure or prevail without paying them.

Now comes Barclays, which took no UK government bailout money (though it did raise money from Abu Dhabi), and seems to be trying to change the rules of the game. By making bonuses payable in shares, over a 3-year period, they create incentives for less short-run risk-taking and more long-run profit-building.

Let us wish Barclays well. Their experiment is very important, far more important than the UK government’s 50 per cent windfall tax on bonuses, or President Obama’s windmill-tilting threat to break up large US banks. If Barclays succeeds, restores its financial health, makes sustained profits and thrives, and if Barclays manages to retain top talent (or, more important, attract top talent who believe in a more sustainable, long-run ethical approach to banking), it will comprise a disruptive management innovation that other more feckless banks may be forced to adopt.

Darwinian experiments of this sort are far more effective than government regulation.

In Greek mythology, Cassandra, the daughter of King Priam was cursed — Cassandra was left with the knowledge of future events, but could neither alter these events nor convince others of the validity of her predictions.

I sympathize with Cassandra. While I believe a sharp deep fall in the value of the dollar is imminent and inevitable, the markets disagree. US Q4 GDP growth will soon be reported, and it will be very high. The Economist reports, in its latest issue:

America’s economy began growing in the middle of 2009 and seems to have accelerated sharply in the final months of the year. Initial GDP estimates for the fourth quarter are due on January 29th, and many analysts expect annualised GDP growth to have shot up to 5.5% or more.

You will not be surprised that Dr. Cassandra has an explanation. Much of this astonishing growth in GDP represents restoration of inventories, depleted during the previous two years. Actual final demand (GDP production that was purchased by someone) grew far more slowly. When inventories are replenished, GDP growth will adapt to final demand, and will fall sharply.

Why has the dollar not fallen, and instead risen? Writing in The New York Times (“Off the Charts”, IHT Jan. 24), Floyd Norris explains it clearly.

* China bought only $62 b. of US Treasury bonds in the first 11 months of 2009. Since some of China’s bonds matured during 2009, China’s total holdings actually fell, to $790 b.

* Since China’s Treasury bond purchases are its main avenue for supporting the dollar (vis a vis the renminbi), why did the renminbi not appreciate, instead staying constant at about 6.8 per dollar? Simple. China’s export surplus to the US declined sharply, leaving far fewer excess dollars splashing around in forex markets. And —

* America’s budget deficit soaring, owing to “stimulus” spending, and borrowing also soaring (in 2009 public holdings of US Treasury bonds rose by a staggering 23 per cent, or $1.4 trillion), to $7.8 trillion (!). But according to Norris, China bought just 4.6 per cent of the bonds the US Treasury sold in 2009, compared to nearly half of them in 2006. So who is funding America’s debt?

* The answer: Americans. With enormous amounts of money sloshing around in capital markets, and with investors traumatized by losses and risk, US Treasury bonds are newly popular. Moreover, large capital gains have accrued to savvy bond investors, as interest rates fell and bond prices rose. Norris reports that Americans bought 61 per cent of new Treasury bonds in 2009, while foreigners (China, Japan, Hong Kong, UK, etc.) bought only 39 per cent.

(Please see the graphs below).

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Caption: China bought far less US debt in 2009 (graph1) ; US govt. new borrowing soared (graph 2) in 2009, but more US investors bought Treasuries, hence China’s Treasury holdings as a percentage of total US Treasury Securities declined to about 10 per cent. Source: NYT

=========================

Conclusion: US institutional investors have temporarily ‘parked’ their money in low-yield safe Treasury Bonds. This took up the slack from China and kept the dollar strong.

What happens when these investors return to looking for more substantial rates of return, and dump Treasury bonds? Will Ben Bernanke raise interest rates to make Treasuries attractive? If so, bond prices will fall, causing capital losses. Moreover, higher interest rates may stifle the recovery.

America is still painted into its corner, and the dollar is still, in Cassandra’s opinion, very very shaky. Only a substantial increase in personal saving will generate stable demand for Treasury bonds. But if that happens, GDP growth will suffer. I don’t know what the solution is, nor does Fed Chair Ben Bernanke.

This is a very big story about some very small screws, and the spirit of improvisation that some say has driven Israeli entrepreneurial success.

CNN Cable News Network reports that Israel has the most fully-equipped and effective field hospital now operating in Port au Prince, Haita. The hospital arrived in two El Al planes, shortly after the devastating earthquake, and was soon fully ready and working. It includes 200 medical personnel, rescue experts and Home Front officers. It includes operating rooms, and specialty ‘wards’, including obstetrics (several babies have been delivered), intensive care, surgery and orthopedics. The field hospital even has imaging capability, with X-ray machines operating off generators.

Israeli orthopedic surgeons have performed many operations to repair broken bones. Some of these operations require inserting screws to hold severely broken bones together. The orthopedic surgery team quickly ran out of such screws.

What can be done? Wait for a shipment to arrive? The surgery could not wait; infection resulting from severely-broken bones is life-threatening.

A team of Israeli rescue experts was dispatched to find orthopedic screws. They found a carpentry shop, managed to get in, found some wood screws and brought them back. The screws were sterilized, and the orthopedic surgeons were soon back in business.

A decade ago, Hyundai was at the bottom of J.D. Powers’ Initial Quality rankings (defining the quality of new cars within 90 days of purchase). Everyone knew this. The fact that Hyundai was cheap but defective made its future as a global car brand very doubtful.

Hyundai’s Korean managers knew this. They did two things. Hyundai was restyled, so that today it looks as sleek, modern and well-designed as any of its competitors.

But they did something else. They set as their goal, making Hyundai top-rated in the J.D. Powers’ rankings. Not “good”. Not “very good”. Tops. Better than Honda. Better than Toyota.

Laughable? Impossible stretch goal? Perhaps. But Hyundai leadership did something else. They insisted on “no excuses”. There will be no acceptable excuse for anything but top quality in the manufacture and production of Hyundai motor cars — the “Accent” and the “Elantra”.

They did not say: Nothing can be done. It is impossible to achieve the quality standards of Toyota and Honda, because (a) (b) (c) (d), etc. They said, no excuses.

In one of the most dramatic changes in the automobile industry, here are the results for J.D. Powers’ June 2009 Initial Quality rankings:

Best Subcompact Toyota Yaris;

close behind: Hyundai Accent, Honda Fit

Best Compact Hyundai Elantra;

close behind: Toyota Prius, Honda Civic.

If you know people who own a Hyundai, ask them if they’re happy. I have. Chances are, the answers will be highly favorable.

“No excuses” is a powerful part of a company’s culture. Singapore has built an entire wealthy nation on it. Define the best practice benchmark. Aim for it. And accept no excuses. It is as simple as that.